Startups in 2022 – foundations to live by

While the circumstances, environment and context will differ for each founder, there are always key phases of the startup cycle and red flags to watch out for, says Dave Rosenberg

Despite international issues creating big challenges for small business owners, there’s no shortage of entrepreneurs who are hungry for success.

SMBs account for 99.9% of the UK’s business population and we’re seeing a net increase in business creation. Government data shows there were 178,517 new incorporations in the UK in July to September 2021 alone.

Despite the challenges, thousands of driven individuals are still striving to turn their ideas into commercial ventures. Yes, the journey can be difficult (often the idea is the easiest part), but it can also be inspiring, exciting, and highly rewarding.

I’ve seen this journey myself from different sides – first as a co-founder of two technology businesses and latterly as an angel investor and venture capitalist. While the circumstances, environment and context will always differ for each founder, there are always key phases of the startup cycle and red flags to watch out for.

1Founding – blending optimism and realism

The first step. The leap of faith. However you choose to frame it, making the decision to turn your idea into a tangible business is one of the most exhilarating (and scary) experiences.

If you’ve got this far you clearly believe in your idea and it’s vital to channel your excitement and motivation as the fuel to push you forwards.

I love seeing the enthusiasm of entrepreneurs drive an idea forward, but there’s a balance of optimism and realism that needs to happen. You will get some things wrong.

It’s important to look for and accept both positive affirmation and constructive criticism.

But use your passion and positivity to learn from your experiences, rethink ideas and seek fresh input.

2People – get the right people around you

While developing a business idea is for many founders one of the most enjoyable parts of the startup process, it can be stressful and lonely, particularly if you are a sole founder stepping out on your own.

When it’s the right time to bring on a small team or look for counsel outside – bring in the RIGHT people. Bring in the people that have expertise in your area but play to your weaknesses.

Look outside of your usual contacts to find others who can help you, whether it’s other founders, technology experts or business advisors and mentors.

You’ll probably be naturally attracted to others who share your enthusiasm and passion for your idea, but also find people who will challenge your approach who, for every idea you have will offer a stream of questions: Why? How? What for?

A good leader is one who can step back and benefit from those around them. This is likely to be your life’s work, not everyone else’s, so use this to your advantage to gain some perspective.

And don’t forget your friends and family will be vital to your success.

3Fundraising – a means to an end

In this phase, stress can quickly ramp up. Be prepared for a diary full of meetings, feedback you may not want to hear, and, at times, feeling woefully unprepared. In that busy diary of yours, make time for regular pep talks with yourself to keep your positivity and motivation levels up, as you’ll need them.

But throughout the funding process always remember that a VC is a means to the end, not the end. You will mess up, not every meeting will go perfectly, and not every investor will buy into your vision. It will take time to find the right fit, so don’t expect instant success.

Give yourself the best chance of engaging the investor community by concentrating on the fundamentals of your business — you. Tell your story, explain your journey, and speak with passion and conviction.

But while investors don’t want to get bogged down in every single detail, it’s critical that you can demonstrate the foundational aspects of your business when asked. Effectively articulating everything from product roadmap to brand identity and growth objectives is key. It’s not enough to simply have a good story. It is critical that you can tell a compelling narrative and back it up with data, armed with financial performance and KPI information, and details about your target addressable market.

Investors will want to see how (and how cost-effectively) you can acquire new customers, alongside solid debt-to equity ratios, sufficient market capitalisation and predictable revenue and earnings streams. Tell the company narrative in a way that attracts customers and convinces investors that they are buying in to something with the potential for growth. Remember – without a financial system that can capture, analyse and forecast these KPIs, the journey gets tougher.

Side note: You’ll be busy, so make sure you take advantage of any free time to really take a break and recharge, even for 15 minutes. Exercise always helped me relieve stress, although it’s not for everyone. Find something that works for you.

4Operating – let the fun really begin

Starting a company is hard, fundraising is hard, but running a company is much, much harder. The next phase is making your business work — and it all comes down to execution.

In this operational mode, the stresses of running a business will likely hit thick and fast.

First off, you’ll be building a team, planning your sales and marketing strategy, developing your product or service, and launching your product or service.

Set yourself up for success.

For finances, it’s everything from preparing monthly accounts and knowing cash flow to modelling growth and future revenue. Then there’s the sales team, customer experience, employee engagement (hiring, developing skills, managing satisfaction), further product or service development, and much more.

All this on top of battling to achieve a work-life balance.

It’s challenging, but there are some key things you can do it running your business as smooth as possible:           

1. Invest in technology that helps you run key operational aspects of your business, such as accounting, driving down the cost of new customer acquisition, and helping grow sales channels efficiently
2. Hire the best talent and use their skills to best effect by automating as many manual processes as possible so they can focus on where they will deliver
3. Find and engage with other founders, to share and learn from their experiences
4. Lean on your board and create a solid senior team around you who share your vision for your business
5. Be self-aware. Decide what you can be right about and look for people who aren’t afraid to ask you the hard questions

Success not stress

Be prepared to be challenged and be receptive to any criticism or advice. Find others like yourself who are on a similar journey and learn from fast-growth business owners who are now seeing success.

Most importantly, stay motivated. Celebrate your successes and learn from your failures – because trust me there will be some.

I know that while the journey can be daunting, the pay-off can be incredible.